France Leaves Benchmark Bond on the Bench

The French Treasury caused a bit of a stir when it announced plans a few days ago to auction a non-benchmark bond.

Of itself it wasn’t an unusual move. Debt agencies often delve into their back catalogue of former benchmark bonds when they turn to investors for fresh cash.

What shook some market watchers this time was that France should dare to have done so twice on the trot.

“Shock!” declared Societe Generale analysts in a note. They claimed the move upset their pre-weekend expectations of a “banal” auction announcement.

Why all the fuss?

Bonds carrying the benchmark title are usually the newest for a given maturity and can most easily be stacked up against those from other countries in terms of liquidity, size, yield and so on. They don’t disappear completely when they stop being those things, but they are unlikely to be reopened for new auctions so often. Hence the surprise that France should auction a Golden Oldie not just once, but twice in a row.

The French treasury agency wasn’t immediately able to say why it did so, leaving analysts scratching their heads.

Societe Generale strategist Marc-Henri Thoumin reckons it could simply be that tapping this old benchmark is currently a more cost-efficient way for the French government to raise short-term debt.

The agency plans to raise cash on its 2.25% February 2016 non-benchmark bond, rather than its 0.25% November 2015-dated benchmark, along with its five-year benchmark 1.00% November 2018 bond.

The yield on the non-benchmark bond is slightly higher than for the benchmark–at 0.40% versus 0.38%–but once the slightly longer term is factored in, the non-benchmark is considered to offer more value.

Government financing costs have come back into focus recently as bond yields have been driven up by fears the U.S. budget deadlock will prompt a technical Treasury default and on lingering worries over the timing and extent by which the U.S. asset purchasing program will be reduced.

Under those circumstances, as the French Treasury appears to have demonstrated, every little saving helps.

“As the song says, you can’t get enough of a good thing,” Societe Generale said.